Coworking: A real estate revolution?

Debtwire and Ropes & Gray, a global law firm, are pleased to present Coworking: A real estate revolution? The report, based on a survey of 100 senior executives from across the real estate sector, examines how coworking is disrupting the industry in the United States and Europe.

Over the past 15 years, coworking has snowballed into a global phenomenon, disrupting traditional occupational office markets and changing the underwriting analysis performed by lenders, operators and capital partners in office and mixed-use assets.

What does this mean for the commercial real estate marketplace generally? How is the coworking sector influencing traditional real estate office strategies and the leasing and brokerage market? How is it affecting valuations and underwriting? What are the sector’s prospects for future growth and M&A consolidation, and how will it fare in an economic downturn?

Key findings from the report include:

Coworking is expected to keep growing stronger: 55% of all respondents expect coworking to continue to absorb traditional office space market share in their region to a great extent over the next three years. All respondents have seen a moderate to significant increase in the proportion of start-ups using coworking over the past three years – with 92% and 73% saying the same about self-employed individuals and large companies, respectively.

Coworking is forcing traditional commercial real estate (CRE) models to evolve: 89% of all respondents say traditional landlords have borrowed “real estate as a service” innovations from the coworking model. 70% of all respondents agree the trend of big coworking providers buying rather than leasing assets is set to accelerate over the next three years.

An economic downturn could produce an uptick in coworking: 73% of all respondents believe an economic downturn would have a positive effect on the coworking sector. 61% of lenders say the coworking model is less vulnerable to the effects of a downturn than traditional office real estate.

M&A, consolidation and strategic partnerships may be on the horizon for the sector: 67% of both equity investors and traditional office landlords expect significant consolidation in the coworking sector through M&A over the next three years, with the rest anticipating at least moderate consolidation. 99% of all respondents say real estate investment trusts (REITs) are natural long-term buyers of coworking operators and assets.